You may have seen an article about Lendy in the Financial Times this weekend, and we would like to explain our point of view on some of the issues raised. The journalist came to us with some very clear misconceptions about how the secured lending market works, and we felt it was very important to correct those misconceptions.
1. Are loans that are ‘beyond term’ a high percentage of Lendy’s loan book?
Over the past year, Lendy has become more cautious as the property market faces headwinds from Brexit and rising interest rates. We have also been more stringent in our due diligence.
As a result, we have been originating fewer new loans on the platform, and the percentage of the ‘live’ loan book made up of current, ‘within term’ loans has fallen. As more loans are repaid, it makes the percentage of remaining loans that are beyond term look artificially high.
Measuring non-performing loans as a percentage of the ‘live’ loan book is not meaningful – that percentage has no effect at all on the prospects for recovery on non-performing loans.
2. Is Lendy returning capital to investors on ‘beyond term’ loans?
Lendy has a dedicated recoveries team that works to return as much of our investors’ funds as possible. We have added significant experience to this team over the last twelve months. We also spend six-figure sums each year on legal fees purely related to recoveries. These costs are borne entirely by Lendy and not investors.
Lendy has made significant repayments to investors in the past year, including on recoveries of beyond-term loans. In the past 12 months alone, Lendy’s investors have received £64.1m in repaid capital and £13.4m in interest.
3. Is the definition of ‘non-performing loan’ clear?
There is sometimes confusion over whether a loan is ‘non-performing’ when it passes its due date, after 45 days, or longer. For property loans, it is significantly longer than for other loans.
Lendy’s definition of a non-performing loan is in line with that used by the P2P Finance Association, which: “includes any portion of a loan that has not been repaid after 90 days from the date the loan became due for all lending apart from property, where the period shall be 180 days.”
We believe this is a suitable period in the property-backed loan market. Normal events in the property development market may cause a delay in a repayment of a loan beyond those 180 days.
For example, a delay in gaining planning permission for a property redevelopment may mean that a borrower could also face a delay in securing a longer-term mortgage with which to refinance their Lendy loan. Decision-making processes at planning authorities and at other lenders in the market can take longer than a borrower might initially anticipate. A delay in a building project would delay repayment.
4. Is there a prospect for recovery on loans that are beyond term?
Lendy is a secured, asset-based lender. All Lendy loans are secured on UK property at conservative LTVs. As with any form of lending, there is a possibility of loans defaulting. However, the possibility of losses to Lendy investors from those defaults is lower, due to the value of the security held.
While recoveries can be challenging and take some time, the security Lendy holds over properties means that the prospects for recovery are much higher than if the loans were unsecured, as with some P2P platforms. Lendy believes that all non-performing loans on the platform retain a likelihood of significant recovery.
5. Is Lendy safe and profitable as a business?
Lendy’s profits have naturally fallen as Lendy has invested in its platform, products, due diligence team and processes over the past two years. Profits are also lower as the number of new loans on the platform has reduced over the past year. Lendy has been profitable from an early stage. Indeed, it remains one of the few profitable platforms operating in the sector today. The vast majority of platforms in the industry have run at a loss for several years in a row.
We remain committed to delivering capital and interest repayments for investors, particularly on non-performing loans. We are happy to discuss this with our investors – please get in touch with us at [email protected].